Government Says American US Airways Merger Bad for Consumers: This Is News?

American Airlines and US Airways defended their proposed merger before a Senate panel yesterday.

American Airlines and US Airways defended their proposed merger before a Senate panel yesterday; the merger would create the world’s largest airline, effectively wrapping up the consolidation binge which began with the Delta–Northwest union five years ago. The airlines had been arguing that there's little overlap between their two route systems, so their merger would not eliminate the competition. Now, thanks to a new study by the Government Accountability Office (GA0), we're seeing that's not quite true.

The airlines had earlier cited a GAO statistic that out of 900 routes the airlines directly overlapped on only 12. But that’s only on nonstop routes; the new study shows that when connecting traffic is factored in, the picture gets more complicated: The merger would eliminate a competitor on more than a thousand routes; although, as the GAO pointed out, there would still be at least one other competitor offering significant service on most of them.

So how big a deal is this—enough to derail the last of the mega-mergers? Even if it did, consolidation has already drastically reduced the number of players in the business. Back in 2000, ten large airlines competed nationwide; the AA–US merger would reduce that to four (American, Delta, Southwest, and United.) Airlines have slashed the number of flights, those flights are jam-packed, and fares are rising. In short, we’re already living with the effects of a less competitive airline industry. It is hardly a surprise that some members of Congress aren’t thrilled about airline mergers, since the effects of consolidation are already being felt in many of their home states, such as in Minnesota, home of Senator Amy Klobuchar, one the lawmakers who sent a letter to the administration questioning the American–US Airways union. As we’ve seen with the Delta deal and United’s merger with Continental, airlines typically ‘rationalize’ their systems after a merger, and depending on where you live, that can be very bad news. Take the city of Memphis, where citizens were outraged when Delta slashed flights formerly operated by Northwest—to the point where critics started Facebook and Twitter campaigns to protest the impact.

Of course, airlines merge for many reasons and most have nothing to do with consumers. After all, the airlines note, they’ve lost billions in the last decade, American is currently in bankruptcy, and they need the “stability” (read: less cutthroat competition) to compete in the global marketplace, buy new planes, and invest in airport facilities and the like. Mergers help them to cut costs and strengthen their pricing power. So, yes, the government should take a hard look at this merger, which is slated to close this fall. But let’s face reality: Consolidation is already so far along that it almost doesn’t matter.